Dollar at 5-Month Low; Sterling Rallies on Conservative Victory

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Dollar at 5-Month Low; Sterling Rallies on Conservative Victory

DECEMBER 13, 2019

The safe-haven U.S. dollar is under pressure across the board as the number of events has reduced perceived global risk and helped equity markets rally.

Overview

The Bloomberg Dollar Spot Index fell to its lowest level in five months.  Domestically, the biggest news was that the U.S. and China agreed to a phase-one trade deal.  The details of the deal are almost beside the point.  Our main take away is that the deal significantly reduces the likelihood of more tariffs in the near future and avoids the new tariffs that were scheduled to kick in this weekend.

The dollar is under the most pressure versus the British sterling following election results.  More below.

Economic data may play second fiddle this morning, but a report showed that retail sales failed to impress.  Total sales rose only 0.2% on a month over month basis, failing to meet estimates of a 0.5% gain.

What to Watch Today…

  • No major events scheduled for today.

Complete Economic Calendar can be found here.

EUR

The Euro was the beneficiary of a weakening dollar and a clearer outlook for the European continent.

The Euro rallied a bit yesterday afternoon during Christen Lagarde’s first press conference as head of the European Central Bank.  The Euro is now at its strongest level versus the U.S. dollar since August.

GBP

The British Sterling jumped nearly 3.0% yesterday evening following an exit poll that showed that Boris Johnson and the Conservative party would win a clear majority in Parliament.  The actual results confirmed that the Tories won their biggest majority since 1987, which makes an orderly Brexit by the end of January more likely.  Brexit is far from a done deal, however, but this is a significant step.  The sterling has given back some of its overnight gains but is still up nearly 2.0% on the day and 12% from its recent low in September.

If Johnson is able to push through his Brexit plan, the U.K. will then have 11 months to negotiate a new trade deal, as an outsider with the 27-member union. This is no small feat and will keep sterling gains capped somewhat throughout 2020.

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